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5/02/2010

Two tiny micro cap value stocks left for dead

I came across two ideas that may interest some investors. CASM (CAS Medical Systems) and ARBX (Arbinet Corporation)

My search was a bit unconventional only due my belief that most of the cheap ideas have seen much of their cheapness removed.

I started by searching for companies posting negative average operating returns from 2006 to 2009. Not only would this allow me to focus on potential mean reversion but also overlooked accrued tax assets. But it was critical that the company was conservatively managed from a financial point of view and doing the right things for shareholders to quickly benefit from any improvements. I tested this by finding companies reporting losses (2006 -2009) but with positive operating cash flows, strong share buybacks and debt reduction. Specifically only stocks reducing share count from 2004 to the TTM and reducing total liabilities from 2007 to the TTM were included. Cash flow from operations needed to be positive over the prior 12 months and average CFFO over the prior 4 years greater than net income. Only ideas with positive or neutral insider activity were considered.

Both these companies are sitting on multiple patented technologies

Taken from the company filings.

CASM has four existing U.S. patents protecting various aspects their LASER-SIGHT technology as well as nine filed patent applications and numerous provisional patents filed.

ARBX has been issued 41 domestic and international patents, and have 17 further pending patent applications related, among other things, to a process that collects requests to purchase and offers to sell telecommunications services, from buyers and sellers of such services, matches the offers and requests and delivers the traded telecom services between matched sellers and buyers.